To maximize the ROI on all the hard work you invest in your company, start thinking about your exit now and not a few months or years before you’re actually read to sell out. That’s the lesson that Bo Burlingham shares with us in Finish Big: How Great Entrepreneurs Exit Their Companies on Top.
Eventually, all entrepreneurs leave their companies – selling, giving them away or liquidation. When you start early enough thinking through how you will maximize the ROI, the process can lead you to build a better stronger more resilient company, now, as well as one with a higher market value.
The goal in selling a company is to be happy both with the results of all the work you did and be in a position to personally reap those financial, social and emotional profits. Interviewing dozens of entrepreneurs, he uses case histories to make his points. In one, Ray Pagano, the owner of a Videolarm, a security camera company, was approach by a competitor to sell the company. The price was much lower price than he had hoped. Realizing that his initial idea wasn’t going to happen, that his children might take over the company, he began to rethink the business.
Like many entrepreneurial businesses, his company was essentially a benevolent dictatorship, with everything revolving around him. Recognizing that he leveraged his membership in Vistage, used the collective wisdom of his CEO peers, as well as his Chair and other experts within the Vistage network, he made changes to get the most out of a potential future sale. By extracting himself from the company, building up his management team – giving them more responsibility and coaching, and focusing on longer-term product development, he was able to increase the value of the company. Five years later, at the height of the economic recession in 2009, he was able to sell the company for four times more than the value he had been offered initially!* According to Bo, after watching how much his company had improved during the five years, his only regret is that he hadn’t started earlier!
(As a Vistage Chair, I’ve heard many stories on how CEOs increased the value of the companies they sold as well as avoided making a bad sale. Indeed, in one, the owner’s accountant, attorney and wife all thought a potential buyer’s offer was good and he should take it. He brought the issue to his Vistage group, and unanimously these experienced leaders voted against the deal, due to doubts about the buyer. After sleepless nights, he decided to heed the advice of his peer group, because they had no vested interest in the deal going through, except their personal concern for his future well-being. Six months later the potentially acquiring company declared bankruptcy.)
Bo identified these eight factors that determine owners happiness after leaving their business:
- Have clear understanding of who you are, what you want from the business, and why
- Recognize that a viable business may be unsellable; therefore they need to look at the business through the eyes of a buyer or investor and make changes
- Give yourself years, not months, to make these changes
- Focus on succession and leave the company in good hands
- Get help not just from paid professionals but also experienced business owners
- Make good decisions concerning the responsibilities given to employees and investors
- Understand the real motivations of the buyers and/or investors for the deal
- Have a clear vision of what you will do after the sale so you can handle the metamorphosis.
Have you started thinking about your eventual sale? Are you getting other’s perspectives to see how a buyer might evaluation your company? Remember, it’s never too early to do as Stephen Covey told us, “start with the end in mind”! Share your experiences with us; remember selling is a journey!